N2OFF, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; unaudited U.S. GAAP financial statements. The filing is for N2OFF, Inc. (ticker NITO), despite the request metadata naming Nexentis Technologies Inc. The company changed its name from Save Foods, Inc. and its ticker from SVFD on March 19, 2024.
Business context
N2OFF operates through majority-owned Israeli subsidiaries in post-harvest pathogen prevention and produce shelf-life solutions, and nitrous oxide emissions mitigation. It also owns approximately 23% of Plantify Foods Inc., a Canadian plant-based food company. The filing describes the company as an early-stage business with limited product sales.
Financial results and liquidity
- Revenue: $43,831, down 64% from $121,010 in Q1 2023, mainly due to lower sales in Mexico. The company reported no customer backlog or firm purchase commitments.
- Gross profit and margin: $15,851 versus $78,264; gross margin was approximately 36% versus 65%.
- Operating loss: $899,066, compared with $1,743,653 in Q1 2023. Lower general and administrative costs were the primary driver of the improvement.
- Net loss: $822,358 versus $1,721,549. This included $83,943 of non-cash fair-value income related to the Plantify investment. Loss attributable to N2OFF stockholders was $769,564, or $0.26 per share, versus $1,713,678, or $2.46 per share. Share and per-share figures reflect the October 2023 1-for-7 reverse split.
- Cash flow: Operating activities used $1,007,516, compared with $1,105,789 in Q1 2023. Financing provided $39,950; cash, cash equivalents and restricted cash decreased by $964,965 during the quarter.
- Cash and liquidity: March 31 cash and cash equivalents were $3,490,095, with restricted cash of $23,114. Working capital was $3,861,561. Total liabilities were $565,840, including $5,255 of operating lease liabilities; the balance sheet reports no other debt balance at quarter-end.
- Assets and equity: Total assets were $6,265,748, including a $1,739,404 Plantify investment. Total stockholders’ equity was $5,699,908.
Material changes and notable items
- Revenue fell substantially, with Q1 2024 sales concentrated in the United States ($38,975) and Israel ($4,856); the United States customer accounted for approximately 89% of sales.
- General and administrative expenses declined 55% to $741,803, mainly due to lower share-based compensation, professional services, insurance costs and franchise tax. Research and development expense was broadly stable at $115,866; selling and marketing expense fell 17% to $57,248.
- At quarter-end, N2OFF’s Plantify holdings included publicly traded shares valued at $627,704 and a convertible debenture valued at $1,111,700. The debenture bears 8% interest and is due October 4, 2024; its principal may be converted at N2OFF’s discretion. The company recorded a fair-value gain in Q1.
- During March, N2OFF issued shares under its standby equity purchase agreement for $39,950 in proceeds.
- Subsequent financing: On April 4, 2024, N2OFF issued a $1.5 million promissory note to YA II PN, Ltd., receiving $1.455 million after a 3% original issue discount. It bears 8% interest, with scheduled $150,000 payments every 30 days beginning June 3, 2024. Payments may be made in cash, through share sales under the equity purchase agreement, or a combination. Default interest is 18%, and specified defaults can accelerate repayment.
- In April, Plantify borrowed $106,000 under a new N2OFF credit facility of up to $250,000 at 8% interest.
Outlook, risks and contingencies
- Going concern: Management expects continuing losses and negative operating cash flows and states that substantial doubt exists about the company’s ability to continue as a going concern. Management estimates existing cash can fund operations through the second quarter of 2025, but says additional financing will be needed and may not be available on acceptable terms, or at all. The financial statements contain no adjustments for a potential failure to continue as a going concern.
- Israel-related disruption: Most operations and personnel are in Israel. The filing reports war-related supply-chain, production, transportation and staffing disruption, including delays to Save Foods pilots and packaging activity. Further disruption could delay commercialization and harm results.
- Commercial and regulatory risk: Sales depend on market acceptance, regulatory approvals and successful pilots, which may be lengthy and may not lead to sales. The company reports no firm customer commitments and limited revenue.
- Funding and dilution: The company relies on external financing. Equity funding could dilute shareholders; debt could impose restrictive covenants. The April note creates scheduled repayment obligations and includes Nasdaq-listing and SEC-filing-related default triggers.
- Other disclosed risks include competition, supplier concentration, product and regulatory development, execution of the NTWO OFF business, and maintaining Nasdaq listing compliance. Management reported disclosure controls effective as of March 31, 2024, with no material change in internal control over financial reporting. No material pending legal proceedings were reported.
Important facts for investors to verify
- Cash runway assumptions behind management’s estimate of funding through Q2 2025, and the going-concern uncertainty.
- Repayment capacity and actual repayment method for the April 2024 $1.5 million note, including any share issuance or dilution under the standby equity purchase agreement.
- Whether revenue can recover from the Mexico decline, reduce customer concentration, and convert pilots into recurring sales.
- Plantify’s ability to repay its October 2024 debenture and N2OFF credit-facility borrowings, and the assumptions supporting the recorded fair values.
- The duration and operating effects of Israel-related disruptions, and progress on pilots, regulatory approvals and commercialization.